STX (ASX) Ann: Southern Cooper Basin Operations Update

Originally posted by rexsh ↑

PSI, in reference to the below post

"Then they confirmed this with their statement about saturation ">30%." Unfortunately they are very vague on exactly what the saturation is, which is annoying because after permeability it's the single most important factor in whether this will work.
They seem to be assuming around 40%, and that 30% is the figure for desorbed gas only, and they are implying there is lost gas on top of that. If they pressured cored all of these (as somebody said here previously) there shouldn't be any lost gas at all, which is worrying.
Basically I think at 50% saturation this might work, but at 30% my gut feeling is that it won't because of the extra water handling costs and delays to first gas. At 30% saturation they are probably going to need to drop the reservoir pressure by about 90% to reach CDP. Given how thick the coals are, that is a gargantuan amount of water they need to shift, and then dispose of. And that's before they get any gas flow at all. I have my doubts that 2 bcf/well will be economic under those sort of conditions (I agree with their recovery per well assumptions, just not sure they fully appreciate how much it's going to cost to deal with that much water).
So that saturation number becomes extremely important. Ultimately they won't know until they get the production tests going."

PSI, In my opinion they may well have used conventional wireline coring to retrieve the coal cores and they seem to be suggesting that there was gas lost during the coring process before the coal was sealed in desorption canisters. If that is the case then the minimum saturation quoted is the measured gas only from those already depleted cores and does not include any allowance for lost gas. They would therefore know there is more gas in the coal than they have measured from those cores but they wouldn't know exactly how much. I guess that is why they have the assumption of 40% in the modelling (page 6 of presentation), which i would have thought as a modelling exercize would be on the conservative side of things.

Note page 8 of the presentation has a half moon shaded in pink. I would suggest this is the scope of their expectations around the range of saturation levels. Note the minimum saturation seen in cores to date is >30% (as per their statement) and the top of that half moon is around 55%. Also the arrow on the left hand side of that page next to "lost gas" has the arrow topping out in the mid 40's%. so the long and the short of it seems to be that they don't know how much lost gas there was in the coring process but that an expectation around those 40-50's% saturation is very possible.

Also, they have stated that 2bcf per well is their modeled break-even for commerciality. Obviously the water handling costs are the big question here but you would think they have some sort of handle on those for modeling purposes. The fact they have their "pink half moon" venturing up into the 4-6 BCF area suggests that a 30% saturation level may well be commercial - unlike your suggestion.

As you say - the water handling costs are the main thing to answer now, but given these guys are CSG experts in their previous businesses I would have thought their modelling would at least include a fairly solid allocation of cost to water handling / dewatering of formation etc.

All in my opinion.

Expand

Great attention to detail and interpretation Rexsh. Thanks.

I have read the announcement many times and missed the detail you have elaborated on, so on the basis of Psi’s post, I was wondering about Managements comment

“We believe we are very close to unlocking the potential of this play that will underpin the development of a major gas resource.”

You have explained it well, and now Psi seems to be in agreement with your post. Well done.

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